31 May 2007

Pearce Delivers Major Insolvency Law Reform

The Parliamentary Secretary to the Treasurer, Chris Pearce MP, today introduced the Corporations Amendment (Insolvency) Bill 2007 into Parliament.  This Bill will improve the efficiency and the cost effectiveness of insolvency processes, strengthen the rights of employees, and enhance the capacity of creditors to maximise their returns.

These reforms were developed on the basis of recommendations from a number of public reviews into the Australian insolvency framework.  The Bill has benefited from extensive industry consultation, initially through the Insolvency Law Advisory Group and subsequently through the public release of draft legislation in November 2006. 

The Insolvency Bill will:

  • Improve the outcomes for creditors by strengthening the protection of employee entitlements, improving insolvency practitioner disclosures to creditors (including on independence and remuneration), removing unnecessary costs by streamlining procedures and facilitating the liquidation of corporate groups.
  • Deter corporate misconduct by extending ASIC’s investigative powers in monitoring liquidators and improving court processes in relation to misconduct by company officers.  These reforms will complement the $23 million assetless administration fund that has already been implemented by the Government to combat phoenix company activity.
  • Improve the regulation of insolvency practitioners by introducing more regular reporting requirements, requiring adequate insurance to be held and providing greater flexibility to the Companies Auditors and Liquidators Disciplinary Board.
  • Fine tune the voluntary administration process in light of stakeholder experiences since its introduction in 1993.

“The reforms will improve the integrity of the insolvency framework.  In particular, this Bill seeks to ensure that employee entitlements are granted priority in administration, as well as reducing unnecessary costs.  The Bill continues the work that the Government commenced with the response to the report of the Banks Taskforce and the Simpler Regulatory System Bill,” Mr Pearce said.

A brief summary of the key reforms in the Insolvency Bill is attached.

31 May 2007

CANBERRA

Contact:   Conor O’Brien 0402 970 515 or 02 6277 2088

 

Corporate Insolvency Reforms - Summary

 

 

 

 

 

 

Significant reforms

Improving outcomes for creditors (Schedule 1)

Part 1 - Employee entitlements

  • Clarify status and priority of the Superannuation Guarantee Charge in liquidation, receivership and voluntary administration
  • Mandate priority of employee entitlements in a deed of company arrangement
  • Clarify the rights of subrogated creditors

Part 2 – Better informing creditor decisions

  • Greater disclosure of relationships that may give rise to a conflict
  • Greater disclosure of basis of remuneration proposals put to creditors

Part 3 - Streamlining external administration

  • Rationalise requirements to publish notices
  • Allow for electronic communication with creditors
  • Remove obstacles to putting a company into creditors voluntary liquidation

Part 4 - Pooling

  • Facilitate pooling in liquidation

Deterring corporate misconduct (Schedule 2)

  • Grant ASIC a general power to investigate liquidator conduct
  • Remove uncertainty about the orders a court may make to prevent company officers and other persons avoiding liabilities
  • Restore longstanding position that penalty privilege does not apply in disqualification proceedings (a key remedy for phoenix companies)

Improving regulation of insolvency practitioners (Schedule 3)

  • Extend the prohibition on offering inducements to insolvency practitioners
  • Update registration requirements by: recognising all forms of external administration; requiring insurance; and requiring annual reporting to ASIC.
  • Introduce greater flexibility into Companies Auditors and Liquidators Disciplinary Board processes (allowing pre-hearing conferences, a 90-day delay in orders taking effect, and the publication of reasons for decisions).

 

 

 

 

 

Significant reforms

Fine-tuning voluntary administration (Schedule 4)

Part 1 - General

  • Clarify the effect of a deed of company arrangement (DOCA) on secured creditors and third party guarantors
  • Clarify the circumstances in which a DOCA may be terminated for breach
  • Require notification to ASIC when a DOCA is finalised
  • Extend the administrators’ right of indemnity to all liabilities properly incurred in the conduct of the administration
  • Require administrators to lodge accounts with ASIC (as for other forms of external administration)
  • Extend the obligation for administrators to disclose to creditors information that is known to the administrator and which would assist the creditor in making an informed decision about the future of the company
  • Introduce a reduced disclosure regime for debt for equity swaps in administration
  • Extend the timeframe for the first and second meetings of creditors
  • Clarify the processes for moving from liquidation to voluntary administration (stay of liquidation, appointment of administrator)

Part 2 – Rights to property during administration

  • Clarify the effects of a DOCA on property subject to a lien, pledge or retention of title clause
  • Clarify the circumstances in which a charge might be enforced

Part 3 – Liquidation following administration

  • Clarify the priority of debts incurred during an administration or DOCA
  • Introduce a requirement for an updated ‘report as to affairs’ where a company moves from administration to liquidation